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Breakdown of a cartel agreement Consider a town in which only two residents, Kevin and Maria, own wells that produce water safe for drinking. Kevin

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Breakdown of a cartel agreement

Consider a town in which only two residents, Kevin and Maria, own wells that produce water safe for drinking. Kevin and Maria can pump and sell as much water as they want at no cost. For them, total revenue equals profit. The following table shows the town's demand schedule for water.

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After Kevin implements his new plan, the price of water to $ per gallon. Given Maria and Kevin's production levels, Kevin's profit becomes & and Maria's profit becomes $ After Kevin implements his new plan, the price of water v to $ per gallon. Given Maria and Kevin's production levels, Kevin's profit becomes % and Maria's decreases increases a dominant strategy a tit-for-tat strategy a prisoner's dilemma This behavior is an example of Price Quantity Demanded Total Revenue (Dollars per gallon) (Gallons of water) (Dollars) 3.60 0 0 3.30 35 116 3.00 70 210 2.70 105 284 2.40 140 336 2.10 175 368 1.80 210 378 1.50 245 368 1.20 280 336 0.90 315 284 0.60 350 210 0.30 385 116 0 420 0 Suppose Kevin and Maria form a cartel and behave as a monopolist. The profit-maximizing price is per gallon, and the total output is gallons. As part of their cartel agreement, Kevin and Maria agree to split production equally. Therefore, Kevin's profit is and Maria's profit is

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